New Programs Aim To Close The Wealth Gap

With the help of a San Francisco nonprofit, Helena Edwards was able to buy a home. The group helped her set up a matched savings account and also gave her financial advice.

Pam Fessler
/ NPR

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Originally published on September 18, 2011 5:55 pm

Part two of a two-part report.

The gap in the wealth of white families and what's owned by blacks and Hispanics has widened in recent years. Researchers say it will widen even more unless steps are taken to break what's become a vicious cycle — the rich getting richer and the poor struggling to keep from falling further behind.

The city of San Francisco is taking one step to help even the playing field. Children entering the city's kindergartens are getting their own college savings accounts.

"It's all about building aspirations in that child's mind," says City Treasurer Jose Cisneros.

The city will deposit $50 in each account — $100 for those students who get free and reduced price lunches. Local nonprofits will match parents' contributions up to another $200.

The amounts are modest, Cisneros admits. But he says, in a city where many public school children are poor, it's more about the message than the money.

"When a child grows up and sees — 'Oh, look at this, concrete evidence, a college savings account, my name on it. That must mean I'm I going,'" he says. "And we wanted to bring that kind of success to San Francisco."

Right now, half the kindergarten classes are participating. Soon, it will be all of them.

This program is part of an effort nationwide by government and nonprofit groups to narrow the racial wealth gap. The Pew Research Center recently found that the median white household has net assets worth 20 times that of the median black household and 18 times that of a Hispanic family — assets such as housing, savings and investments, minus any debt.

Ben Mangan runs a nonprofit group in San Francisco called EARN, which helps low-income families save money for long-term investments, such as college, a home or business. He says the racial wealth gap itself is propelling the economic divide.

"The fact is, communities of color have less of the dollars across the generations and so they're at a disadvantage in their ability to invest in the things that would allow them to get ahead," he says.

His group has helped people such as 34-year-old Helena Edwards, who today lives in a three-bedroom condominium in the Bayview section of San Francisco. She bought the place about a year ago, after she, her partner, their daughter, a niece and a nephew came home one day to find an eviction notice on their door.

"The apartment we was living at, the landlord went into foreclosure and he didn't tell us," Edwards says.

First, she got the eviction delayed. Then, with the help of EARN, she started a matched savings account for a down payment on a home. The group also gave her financial advice. Edwards grew up in foster care, and no one really showed her how to handle money, let alone how to buy a house.

"Lot of stuff that I never knew about. Never. I don't even know anybody who owned a house but one person," she says.

Edwards learned how to have money automatically withheld from her paycheck to put into a savings account. And she got her favorite tip of all — something she calls a "credit card condom" — to help control debt.

"It's a little envelope you put over your credit card and you write your goal," she explains. "Every time you use that credit card, you had to pull it out of that sleeve. So you got to read, 'Do I need this, or do I need to save for a house?'"

Now that she has her house, Edwards says she can focus on other things, such as finishing her college education.

Tom Shapiro of Brandeis University, who has studied the racial wealth gap extensively, says families that participate in these individual development accounts, as they're called, have shown promising results.

"Their foreclosure rates have been much lower. Their savings are much higher. Indicators around their children's education are much better," he says. "But we're talking about maybe thousands of families, not even tens of thousands in a state."

And there are millions who need help. These programs are also expensive, which make them difficult to fund at a time when government at all levels is stretched for resources. San Francisco's Kindergarten to College accounts will cost the city about $500,000 a year.

Shapiro says it will take a lot more than that to narrow a gap that's so firmly entrenched. He thinks one solution might be tax breaks to encourage low-income families to save more. Shapiro says that might offset the many tax breaks today — on things such as estates and investments — that tend to favor those who already have wealth and help to widen the economic divide.

Stuart Butler of the Heritage Foundation says another way to encourage more savings by low-income families might be for employers to automatically enroll people in savings plans — for things such as 401(k) plans — instead of waiting for them to sign up, which they often don't do. Once enrolled, he says, people are more likely to keep saving.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

DAVID GREENE, Host:

You know the old saying: The rich get richer. Well, here's a troubling caveat: Those getting richer are also disproportionately white. Blacks and also Hispanics are falling further behind. Researchers say that wealth gap will widen even more unless something breaks the cycle. NPR's Pam Fessler has our second report on closing the economic divide.

PAM FESSLER: Kindergartners in San Francisco are getting something new this fall besides a backpack and pencils: Their own college savings account.

JOSE CISNEROS: It's all about building aspirations in that child's mind.

FESSLER: City Treasurer Jose Cisneros says the city will deposit $50 in each account - 100 for those who get free and reduced-price lunches. Local nonprofits will match parents' contributions up to another $200. Modest amounts, but Cisneros says in a city where many public school children are poor, it's more the message than the money.

CISNEROS: When a child grows up and sees, oh, look at this: concrete evidence, a college savings account, my name on it - that must mean I'm I going. And we wanted to bring that kind of success to San Francisco.

TATIANA SEGENTHALER: So, basically, what we're going to do in this exercise is on the first table, number one...

FESSLER: In the city's financial district, Tatiana Segenthaler stands in front of a class. She's teaching several low-income adults how to calculate their debt-to-income ratio. They have to take this financial management course to get a matched savings account with a nonprofit called EARN.

SEGENTHALER: On the bottom, you're going to write your total monthly income. And on the last part...

FESSLER: These two programs are part of an effort nationwide to narrow what's often called the racial wealth gap. The Pew Research Center found recently that the median white household has net assets worth about 20 times that of the typical black or Hispanic family - assets such as housing, savings and investments, minus any debt. Ben Mangan, who runs a nonprofit group EARN, says the gap itself is only making the problem worse.

BEN MANGAN: The fact is, communities of color have less of the dollars across the generations. So, they're at a disadvantage in their ability to invest in the things that would allow them to get ahead.

FESSLER: Things such as a college education, a business or a home. So his group - as well as the city of San Francisco, the federal government and others - are trying to do what they can to turn the tide, first of all, by encouraging more low-income families to save.

UNIDENTIFIED WOMAN: Oh, hi.

HELENA EDWARDS: Come in. Come in.

FESSLER: Helena Edwards greets her half-sister and her two children. They've just arrived at Edwards's three-bedroom condo in the Bayview section of San Francisco.

EDWARDS: What was he eating?

(SOUNDBITE OF LAUGHTER)

FESSLER: Edwards bought this place about a year ago, after she, her partner, their daughter, a niece and a nephew were about to be thrown into the streets.

EDWARDS: The apartment we was living at, the landlord went into foreclosure, and he didn't tell us.

FESSLER: First, Edwards was able to get the eviction delayed. Then, with the help of EARN, she started a matched-savings account for a down-payment on a home. She also got financial advice. Edwards grew up in foster care. No one really showed her how to handle money, let alone how to buy a house.

EDWARDS: Well, that was stuff that I never knew about. Never. I don't even know anybody who owned a house, but one person.

FESSLER: She learned how to have money automatically withheld from her paycheck and put into a savings account, and then she got her favorite tip of all.

EDWARDS: It is called the credit card condom.

FESSLER: A credit card condom to help control debt.

EDWARDS: It's a little envelope you put over your credit card, and you write your goal. And every time you use that credit card, you've got to pull it out of that sleeve. So, you got to read: Do I need this, or do I need to save for a house?

FESSLER: Now that she's got her house, Edwards says she can focus on other things, such as finishing her college education. Tom Shapiro of Brandeis University says families that participate in these individual development accounts, as they're called, have shown promising results.

TOM SHAPIRO: Their foreclosure rates have been much lower. Their savings are much higher. Indicators around their children's education are much better. But we're talking about maybe thousands of families, not even tens of thousands in a state.

FESSLER: And there are millions who need help. These programs are also expensive. San Francisco's Kindergarten to College accounts will cost the city about a half million dollars a year. Shapiro says it will take a lot more than that to narrow a gap that's so firmly entrenched. Pam Fessler, NPR News. Transcript provided by NPR, Copyright National Public Radio.